If you're going to make 2016 the year you buy a home in Chapel Hill, one of the first things you're going to do is figure out how you're going to pay for it. If some wealthy great-grandfather left you bags of cash in his will, that's one thing - but most of you will probably need to get a mortgage to move in to that home of your dreams.
One of the most stressful aspects about buying a home is saving up for your down payment. If you can’t manage twenty percent down, it doesn’t mean instant noodles for a year – you have other options.
Mortgage. It's a scary word. It's really scary when you realize it comes from an old French term meaning "death pledge".
Modern lending practices are a little better. Most people opt for the 30-year option until "pry it from my cold dead hands". Did you know there are different types of mortgages? You aren't required to have 20% and there are several options available these days.
Let's look at what you could do and what your payment could be on a $400,000 home in Chapel Hill.
This is the one you're probably most familiar with. This is the 20% down model that's been used in the United States since the Great Depression. Essentially, you pay the bank 20% up front, they loan you the remaining 80% and you pay that 80% back over a term with interest.
If you have a giant chunk of chance from selling a previous home, this one is the most attractive because this gives you the lowest monthly payments.
That $400,000 home would run you about $1,528 per month - not including taxes and insurance and would require $100,000 down.
But what if you're a first time home buyer or don't have a rich/recently deceased great grandfather?
This option is by far the most popular option for people who don't have 20% to put down. Unlike the conventional loans, FHA Loans require as little as 3.5% down and are available to people who might have a couple of dings on their credit report. If you have a 580 FICO score or better, you can put down 3.5%. If your score is 500-579, you can qualify if you put down 10%.
There is a caveat. Since you're putting less down, your mortgage payment will be higher. Also, since you're putting less than 20% down, lenders consider you "risky" so they charge what's called a "Primary Mortgage Insurance".
That same $400,000 home would now cost $2,158 per month and require only $14,000 down.
If you've served this country and have been honorably discharged, then you should have access to this option. Guaranteed by the Department of Veterans Affairs (hence the "VA"), this loan makes it possible to own a home with zero down.
Another huge advantage of this sort of loan is that there isn't that pesky mortgage insurance as there is with an FHA Loan. There is an upfront funding fee, and your monthly payment is greater due to paying nothing down, but in the end you're paying even less than you would under and FHA loan.
This options gets you that $400,000 home for only $1,916 per month.